Gold’s near indestructibility, rarity, beauty and status as a universal means of exchange has made it highly sought after for centuries. Throughout history, nations and empires have sought the possession of gold as a store for wealth, a medium of exchange, and to increase their power. At the same time, countless individuals have used gold to increase and protect their wealth against the depreciation and fluctuations of paper money, geopolitical, and macroeconomic risks. No other asset in the world has the universal appeal of gold, and the turbulent nature of today’s global economies and financial systems has increased this appeal exponentially.
Investing successfully is all about risk management and investment diversification. In other words, successful investors never put all of their eggs in one basket. History has shown us that markets do crash on occasion, and without proper diversification, your nest egg can be decimated overnight. Therefore, a healthy investment portfolio should include a wide variety of investments that are exposed to varying market regions and sectors, numerous bonds from different countries and durations, diversified real estate holdings, a percentage of cash, and at least a 10 percent allocation to gold bullion and gold-related investments.
The key to successful investment is determining how much of each asset class to own as well as owning assets that can weather the portfolio-crushing nature of inflation, hyperinflation, stagflation, and deflation. As such, every portfolio should include a considerable exposure to gold. Most investors agree that a portfolio with at least a 10 percent exposure to gold and gold investments is ideal for building and preserving wealth in every economic climate.
Your own personal motivation for investing in gold plays a fundamental role in deciding which form of gold investment you should pursue. Ask yourself, are you a saver, investor, or speculator? Would you rather take a speculative short-term gold position or a medium to long-term position? Your answers to these questions will determine your ideal form of gold investment.
Investing in Physical Gold
Every properly diversified portfolio should contain some form of investment in physical gold. To this day, gold is still a finite universal currency, and it is held in mass quantities by every major central bank in the world. For the first time since the late 1980s, central banks are buying more gold than they are selling. All around the world, central banks are hording gold to preserve their country’s financial, economic, and political systems.
Gold bullion is not an investment in the classical sense. Rather, it is a form of financial insurance. Gold bullion should not be traded. Instead, it should be purchased and stored at a secure third-party location. After all, a person doesn’t trade an insurance policy, so physical gold should not be traded; it should be bought and held.
Gold is the equivalent of money, and it is the premier safe haven asset. Investing in gold is the best way to preserve your wealth and pass it along to future generations. You shouldn’t begin diversifying your portfolio with speculative gold investments like mining stocks until you have achieved enough bullion and physical gold to comprise a solid core. Throughout history, gold has risen in value, and the troubled global economy is foreshadowing a bright future for this coveted precious metal.
Modern Gold Bullion Bars and Coins
By investing in modern bullion coins, investors can own investment grade gold by only paying a small premium on the market spot price of gold. The value of gold bullion bars and coins is almost entirely determined by the market price of gold. Due to the security implications of having a large amount of gold in a private residence and the cost of obtaining an insured delivery, investors do not typically take delivery of large bullion bars. Since some bars, like the London Good Delivery Bar, cost more than $400,000 and weigh 400 troy ounces, big bars like these are normally purchased and preserved by central banks, institutions, and large corporations. However, there are many forms of smaller gold bars that can be purchased through reputable gold dealers and stored at secure gold depositories.
Gold is also widely available in the form of bullion coins that are minted in the U.S., U.K., Australia, Austria, Canada, South Africa and other countries. Bullion coins are minted in a variety of weights and measures, but one ounce coins like the Britannia and Krugerrand are by far the most sought after by both small investors and high net worth investors who recognize the advantages of owning bullion coins of legal tender that are easily divisible. Furthermore, thanks to the 2000 EU Gold Directive, purchasing investment grade gold bullion for investment purposes is both tax and duty-free.
Semi-Numismatic and Numismatic Gold Coins
Numismatic and older, rare coins are not only bought for their precious metal content, but they are also purchased for their rarity, aesthetic appeal, and historical value. These types of gold coins are leveraged to the price of gold, which means that the value of these coins typically surpasses and increases faster than the price of gold during a bull market. However, it also means that they will decrease in value more during bear gold markets. However, the gold market has been bullish for quite some time, and every analyst believes that the gold bulls will keep running in the years to come.
The most widely owned and traded semi-numismatic gold coin in the entire world is the British Gold Sovereign, which was the original one-pound coin. Many investors like the fact that the British Gold Sovereign is not subject to the same capital gains tax of other gold investments. Every British Gold Sovereign minted after 1837 is considered legal tender and has a face value, which makes it a tax free investment; an obvious benefit to most investors. Pre-1933 gold coins with a grading of MS-65 or better are also highly sought after. They are frequently purchased by both collectors and investors alike.
Unlike large gold bars, unless they are purchased in large quantities, most investors choose to take physical possession of these treasured coins. Insured delivery of numismatics and bullion usually costs one to two percent of the investment’s total value. Similarly, insured third-party storage of numismatic coins and bullion is usually funded through an allocated account and costs one percent each year. Investors should perform proper due diligence when selecting a storage provider for their gold investments. Part of this due diligence is ensuring that the storage provider they choose has a high net worth and credit rating.
Some gold investors choose to invest in gold certificates, because they are highly liquid and can be easily sold online. Unfortunately, the Perth Mint Certificate Programme is the only gold certificate program in the entire world that is backed by a government. However, the program has an AAA rating from Moody’s and Standard and Poor’s, which makes it an extremely secure way of investing in investment grade gold bullion. There are also no shipping, insurance, custodial, or holding fees, which makes gold certificates a cost-effective way for investors to invest in gold bullion over the short or long term.
In today’s bleak economy, investing in gold is not only highly advisable, but it is necessary. Nearly every analyst agrees that investors should allocate up to 20 percent of their portfolios in gold bullion and coins. Whether it is conducted in person or online, investing in gold is quick, easy, and secure. There are many reputable gold dealers, such as Monex, that provide investors with a wide array of gold investment options. From rare numismatics to investment grade bullion, monex gold is a popular choice for many of today’s savvy gold investors.